Clients avoid trusts because ‘they are too complicated’: Survey

Trusts are either too complicated, do not offer enough control or the investor wants more flexibility in accessing capital later in life. These are the three biggest reasons advisers claim clients shy away from investing in trusts, according to survey.

The research conducted with international financial advisers, carried out by Old Mutual International, part of Quilter, revealed that 28% of advisers believe that their clients avoid trusts because they are too complicated and do not understand them.

However, due to the fact that trusts can reduce a person’s exposure to inheritance tax, they give advisers the opportunity to demonstrate the value of advice – which is something that 60% of advisers believe others in the industry find difficult to do according to the research.

A record £5.2bn was collected in IHT receipts by HMRC in 2017/18, which is a 67% jump in five years. Through good financial planning and the use of trusts, it is possible to mitigate the impact of IHT.

“Modern trusts are about transparency, fairness and simplicity. They ensure the right people receive the right amount of money at the right time, something which has become even more important in today’s complex family structures,” Rachael Griffin, head of trusts and technical solutions at Quilter, said.

Another 25% of advisers claimed that clients avoid trusts because they do not offer enough control, since when assets are placed in trust, legal ownership passes to the trustees who then have responsibility for managing and distributing the trust fund to the beneficiaries.

This causes concerns to the client that he is transferring responsibility for his wealth to someone else, who will be in charge. Old Mutual International argues that trusts should not be seen as a loss of control, “rather they are legal arrangements made by your clients with trustees who determine how beneficiaries are to be looked after.”

The third biggest barrier stopping people from investing in trust, according to 17% of advisers, is that clients simply do not know how much money they might need access to in later life. There are trusts in the market today that are more flexible when it comes to accessing funds in the future.

“While this research highlights the potential concerns of clients, these can all be mitigated through greater understanding and knowledge of the full range of trust solutions now available. Trusts remain a cornerstone of financial planning, and are a great way for advisers to demonstrate the value of their advice to their clients,” Griffin added.

The survey was conducted by Old Mutual International in June this year with 180 respondents from across the UK, Europe, Middle East and Asia